Towards the end of any business cycle, financial markets hold the potential to turn schizophrenic. They can sometimes lack coherence, will typically become a little more volatile and turn sensitive to any events that might further detract from the investment environment that would encourage further appreciation. With this in mind, it was rather interesting that US Treasuries sold off yesterday despite their safe-haven status, and this at a time when US equities weakened and the dollar strengthened. These dynamics suggest some funds are exiting risk strategies and moving to cash to help weather the ongoing market storm.

Meanwhile, and despite plenty of media coverage and speculation, there’s no new material information about the status of the GNU. The market does not like this kind of uncertainty, especially not against a backdrop of tightening financial conditions globally. As equity markets come under severe pressure due to a spiralling trade war, pro-cyclical assets such as the ZAR naturally come under pressure. It is not until major central banks respond to this financial market instability with easier monetary policy that the pain for higher-Beta assets stops, and, for now, the likes of the US Federal Reserve are still weighing the inflationary risk of the trade war against growing recession risk. More pain thus likely lies ahead, notwithstanding signs of consolidation in the market this morning.

ZAR Markets

The ZAR has found some technical support around R19.6800 overnight after depreciating nearly 5% in two sessions. Its appreciation bias this morning – likely more consolidation than anything else – is consistent with a tentative recovery in market sentiment. That being said, it is still premature to call a bottom for both equity markets and the ZAR, with the trade war still spiralling for now. Volatility remains the order of the day, suggesting good hedging strategies are needed.

Global FX Markets

The Japanese yen and Swiss franc, traditional safe-haven currencies, held near six-month highs on Tuesday as markets reacted to recession fears sparked by President Donald Trump’s sweeping tariffs. The U.S. dollar, typically a safe-haven asset, weakened amid uncertainty over the tariffs’ impact on U.S. growth, losing its usual appeal. Global shares have tumbled since Trump’s tariff announcement last week, prompting retaliatory tariff proposals from China and the EU, which Trump countered with threats of even higher duties. This escalating trade war has driven investors to the yen and franc, while the euro rose sterling regained a footing. The dollar index is currently pivoting around the 103.00 mark as we head into the EU open. Market price action is almost solely because of Trump’s actions barring some minor local factors, which does suggest a reversal of his hardline could stabilise conditions.